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When most boys his age were devouring Louis L'Amour Westerns or Marvel Comics, a young Wally Weitz was enthralled with a different spectacle—Wall Street. "I was the kid under the covers with a flashlight reading about stocks and bonds," says Weitz, who at age 12 bought his first stock, General Telephone & Electronics, at $26.38 a share. When he sold three years later, the stock was up more than 60%.

Weitz's early proclivity for investing wasn't just a passing phase. The New Orleans native went on to become an early student of Benjamin Graham's value-focused investment philosophy in high school, then parlayed an economics degree from Carleton College in Minnesota to an analyst position in New York. When it was time to start a family, Weitz sought a brokerage job in Omaha, Neb., his wife's hometown.

Wally Weitz, 64, and son Drew, 33, work with a close-knit staff to find companies they can own indefinitely.
Scott Dobry for Barron's

It was in the heartland that Weitz became acquainted with Warren Buffett. "The boss took me to a Berkshire Hathaway meeting back when it was still tiny," says Weitz, who has continuously owned
Berkshire Hathaway
(ticker: BRK.A) since 1976. He paid $300 for shares now worth $174,500, and still counts Berkshire as one of the firm's largest holdings. While some investors worry about Berkshire after Buffett, Weitz believes that its founder has put all of the pieces in place to keep delivering returns to shareholders.

Thirty years after starting his eponymous firm, Weitz, 64, has proved to be a venerable value manager in his own right. Three of the four funds that Weitz manages or co-manages rank within the top decile of their respective peer group for five-year performance (the fourth is just barely outside, beating 88% of peers). Weitz's flagship
Weitz Partners Value
fund (WPVLX), a $1 billion all-cap fund, is up an average of 20% over the past five years and ranks in the top 5% of its large-blend category. The
Weitz Partners III Opportunity
fund (WPOPX)—a $1.1 billion long-short fund that he manages solo—is up an average of 23% over the past five years, better than 94% of its peers.

DREW WEITZ, 33, DOESN'T remember his dad ever sitting him down and explaining the stock market. "It was just something we were always exposed to at the dinner table," says Weitz's younger son, who joined his dad's firm in 2008 after working as an analyst at Ariel Investments in Chicago for four years. Wally set up an incentive program for his three children, offering to match their savings dollar for dollar. Although all of the kids participated—Weitz remembers daughter Katie razzing him when her shares in Kellogg did better than some of his holdings—it was Drew who showed a lasting interest and interned at the firm during school breaks.

While there's no question that Dad is proud of his children, it was never a foregone conclusion that one of them would carry on the Weitz legacy. When Drew came back to work in Omaha, "I made it clear that there's no crown waiting in the closet," says Weitz. "There was no presumption."

Weitz says he has no plans to retire soon, maybe ever. "I joke that I'm on a rolling 10-year retirement plan," he says. Still, if something "untimely" happens, Ken Stoll, who currently runs the day-to-day operations, will continue to do so while Brad Hinton, the firm's director of research and manager of the $131 million
Weitz Balanced
fund (WBALX), will take over as chief investment officer. Longer-term, Drew will likely have "a more formal place," Weitz says, but "we're not good with titles." Also, since 2006, Weitz has been systematically selling his shares to employees, who now own about 26% of the $5.5 billion firm.

"Wally's name is on the door, but he's very unassuming," says Morningstar analyst Kevin McDevitt. "He's not someone who has a huge ego and likes to hear himself talk." These qualities, McDevitt says, bode well for a smooth succession. In the meantime, he says, Weitz's protégés have been a positive influence. "People like Dave Perkins, Brad Hinton, and Drew Weitz have expanded the opportunity set to places like technology, health care, and energy," McDevitt says. The firm's largest holding,
Valeant Pharmaceuticals International
(VRX), was the brainchild of the
Weitz Value
fund's (WVALX) co-manager Perkins, the son of a hospital administrator and proponent of investing in health care.

Anyone who has spent time in the Weitz headquarters, located in an understated office park five miles from downtown Omaha, knows there's nothing presumptuous about either the firm or Weitz, who prefers plaid shirts to custom suits and says he enjoys the solitary aspects of investing to glad-handing. "He's a very genuine and down-to-earth person," Hinton says. This can have a disarming effect when Weitz sits down with company management. "He'll say to the CEOs, 'If it's just us in a room and we own the whole company, what would you do differently?' " says Hinton. "They'll usually tell him." Weitz's long investment horizon—the tenure of some holdings is measured not in years but decades—is also a contributing factor. "You can have a different type of dialogue once you've built credibility with management and established that you're in it for the long haul," adds Hinton.

Weitz's low-key and evenhanded personality has left a lasting mark on his firm, says Hinton. The investment team—seven equity analysts and managers, two fixed-income specialists, and one trader—is a collegial group of pros who vet one another's ideas at weekly investment meetings and are in constant contact the rest of the time. They don't spend too much time worrying about what the market's doing or debating the merits of one sector over another. "Our main concern is finding good businesses with a high margin of safety," says Drew Weitz.

Nevertheless, everyone in the firm follows a common philosophy: "We invest like business owners and try to buy shares at well below what an informed investor would pay for the whole company," says Drew.

THERE ARE MANY WAYS to define that safety, but it often goes back to what Wally and his colleagues think a business is worth and how that relates to its current market capitalization, a gauge they express in terms of cents on the dollar. Right now, for example, the weighted average across all of the portfolios is 90 cents on the dollar, or a 10% discount to their intrinsic value, says Weitz. He's comfortable with those kinds of valuations, he says, but when he looks at most of the market, "I see a lot of high-priced stocks." Consequently, he and the other managers have been building their cash reserves. The all-cap Partners Value fund, for example, is about 28% cash. It's not that Weitz expects another repeat of 2008 and 2009, he says, adding, "I just like to buy things when they're cheap."

In early 2009, everything was on the table, from blue chips that were the cheapest they'd ever seen to companies on the extreme end of the value continuum. Weitz encouraged his team to pick a path in the middle, focusing on companies that the market had abandoned but they knew well enough to buy with confidence.

Weitz Partners Value

Total Returns*

1-Yr

5-Yr

15-Yr

WPVLX

28.1%

20.3%

7.8%

S&P 500 TR

28.8

17.6

4.4

% of

Top 10 Holdings

Ticker

Portfolio**

Valeant Pharma

VRX

5.1%

Aon

AON

4.3

Berkshire Hathaway

BRK.B

4.0

DIRECTV

DTV

3.6

FLIR Systems

FLIR

3.5

Redwood Trust

RWT

3.5

Texas Instruments

TXN

3.5

Iconix Brand Group

ICON

3.5

Liberty Global

LBTYK

3.2

Wells Fargo

WFC

3.0

Total:

37.2%

*All returns are as of 1/8; five- and 15-year returns are annualized. ** As of 9/31/13. Sources: Morningstar; Weitz Investment Management

The quality of a company's management says Weitz, is as important as the strength of its balance sheet. Cash is great, but only inasmuch as management knows how to put it to work. For Weitz, media mogul John Malone is just such a manager. Weitz has owned Malone's Liberty companies—there are currently four of them publicly traded—at various stages since the 1980s. In 2009, Weitz upped the ante when
Liberty Global
(LBTYK) was trading at about $10 a share after investors had fled, fearing too much leverage. The stock was recently at $85.

WHILE THE MOOD AT Weitz was optimistic in 2009, many investors didn't share that sentiment. In the three years following the crisis, Weitz funds saw $400 million in redemptions. That fund investors "sell last year's to buy this year's winners" is a source of frustration for Weitz, not because it runs counter to his strategy of buying when the market is down, but because fund investors ultimately lose money. Now that the funds are posting strong returns, not surprisingly, the firm is seeing inflows.

Although Weitz is hoarding some of that cash, waiting to put it to work when prices are down, he doesn't need, or expect, a full-scale selloff to find deals. As he sees it, value isn't an absolute term, which explains why some Weitz funds own the likes of
Google
(GOOG). Weitz added the goliath nearly six years ago. "It kept coming up when I talked to traditional media people," says Weitz. "Everybody named Google as the biggest threat to their business." At the time, Google was selling for about 17 times earnings, a little high for his comfort level—he prefers single-digit valuations—but he was heartened by its 20% annual-earnings growth and investments in new platforms, such as Android.

"It illustrates the fact that conventional wisdom about value versus growth is a false distinction," says Weitz, who adds that he's willing to look at any kind of company if he thinks the stock price doesn't reflect the true value of the business.

Weitz considers Partners III the purest expression of his style. Rather than short individual positions, he says, he'll use options to short segments of the market he thinks are overvalued, "so I can buy extra shares in the things I really like," he says. Recently, he was short the Standard & Poor's 500, Russell 200, and long-term Treasuries.

At the end of 2011, Drew was named co-manager of the $500 million
Weitz Hickory
fund (WEHIX), a concentrated small- and mid-cap portfolio that Wally ran solo for nearly a decade.

The partnership has been mutually beneficial. While the older Weitz brings decades of insight to the table, the younger has helped broaden the fund's horizons. When Perkins first proposed airplane-component maker
TransDigm GroupTDG 2.9759737895886422%TransDigm Group Inc.U.S.: NYSEUSD226.3
6.542.9759737895886422%
/Date(1438376631016-0500)/
Volume (Delayed 15m)
:
499913AFTER HOURSUSD226.3
%
Volume (Delayed 15m)
:
15210
P/E Ratio
58.932291666666664Market Cap
12057717101.004
Dividend Yield
N/ARev. per Employee
336815More quote details and news »TDGinYour ValueYour ChangeShort position
(TDG), Drew could see the ongoing value. In addition to a management team whose members "have a private equity mind-set," TransDigm benefits from a high barrier to entry—thanks to the cost and time it takes to get Federal Aviation Administration approval—and repeat customers; 80% of its sales are in the after-market. "In some ways, it's an annuity stream," says Drew, who scooped up the stock when it was trading at a 25% discount to its business value at the end of 2012 over concerns that the fiscal cliff would cause turbulence for carriers.

"For us, the story was how defensible are cash-flow streams—we thought very—and how intelligent was management at deploying cash flow," says Drew. A year later, the stock is trading at $160, a 43% gain. "We still think the stock is a value," says Drew. "Now it's about giving them some time to let the business grow."